The stock market has been volatile lately, even as U.S. Treasury yields are rising. Meanwhile, the Federal Reserve’s preferred inflation measure, the personal consumption expenditure (PCE) index, is climbing. In this environment, investors need to be more selective in their decisions.
My colleague, Dr. Joe Duarte, is one of the smartest investment analysts I know, and he recommends investing in deepwater oil driller Transocean (NYSE: RIG). I’ve had a lot of success trading RIG over the past three years, so I’m happy to share my insights on this stock.
RIG drills oil and natural gas wells in deepwater locations in the Gulf of Mexico and elsewhere around the world. The company has been around since 1953 and is one of the few survivors from the first wave of offshore drilling companies.
RIG is not an exploration and production (E&P) company, which means it doesn’t own any of the oil or gas it drills. It just does the drilling and sells its services to E&P companies. This business model gives RIG more stability, because it isn’t exposed to volatile commodity prices.
RIG’s fleet of drillships, semi-submersibles, and jackups is one of the most modern in the industry. The company is well-positioned to benefit from a pick-up in deepwater drilling activity. Since the beginning of 2016, RIG’s backlog of contracts has increased by almost 50%.
RIG’s finances are improving, too. In the second quarter of 2016, the company reported a 78% increase in net income, compared to the same period of 2015. At the same time, RIG’s debt-to-equity ratio declined to 0.9, which is well below the industry average of 1.3.
In addition, RIG is in the process of divesting its shallow-water assets. This move will streamline the company’s focus on deepwater drilling and reduce its debt load. RIG is also cutting costs and streamlining operations, which should lead to higher profits in the future.
For investors looking for a winning strategy, RIG is a stock to consider. The company is well-positioned to benefit from a pick-up in deepwater drilling activity and its financials are improving.
